INVESTORS are ploughing $26.5 billion a year into self-managed superannuation funds, as the rapidly expanding sector puts growing competitive pressure on the rest of the retirement savings industry.
With many super funds struggling to regain investor confidence after the global financial crisis, a new snapshot of the self-managed sector underlines its rapid growth, largely driven by voluntary contributions.
Figures to be published on Wednesday by the Tax Office show that since 2008, the self-managed sector has ballooned by almost a third, with almost $440 billion in assets under management this June.
Member contributions are driving most of the sector's growth, with investors tipping in $17.5 billion a year, more than double the amount contributed by employers.
A key reason for the rapid growth of self-managed super has been its relatively low cost, and the data confirmed the sector's average ratio of expenses to assets had declined steadily between 2008 and last year, from 0.69 per cent to 0.54 per cent.
Analysts say this drop in costs has dragged down average fees across the super industry, however they warn fixed accounting fees mean self-managed funds are only cheaper for balances of at least $300,000.
Another attraction of self-managed super is it gives investors control over where their retirement savings are invested, and this was also reflected in the figures.
Term deposits, cash and Australian shares - all asset classes that are easily accessible to small investors - accounted for about 60 per cent of the sector's assets.
The head of research at Rainmaker, Alex Dunnin, said poor returns in many asset classes had made term deposits look attractive in recent years. However, falling interest rates would provide a growing challenge to the sector.
"Up until recently, if you stuck money in term deposits, you would have been one of the best fund managers in the country," Mr Dunnin said.
The average balance for self-managed funds at June 30 last year was $506,000 - about 17 times greater than the average balance of a regulated fund.
The Minister for Superannuation, Bill Shorten, said self-managed super was a key part of the nation's retirement saving system.
"The SMSF sector is the largest sector of the Australian superannuation industry with about 480,000 funds, holding almost $440 billion in assets," Mr Shorten said.
The bulk of self-managed super fund members were aged 45 or older, but the report also showed increasing growth among people aged between 25 and 44.
The chief executive of the SMSF Professionals' Association of Australia, Andrea Slattery, said there was growing interest in the sector from young people who were self-employed, ran a small business or were senior executives.
"It's not just the older ones. It's a more diverse group that's becoming interested," she said.
Frequently Asked Questions about this Article…
Why are everyday investors choosing self‑managed super funds (SMSFs)?
Many investors are choosing SMSFs for greater control over where their retirement savings are invested and for relatively low costs. The article notes SMSFs have grown rapidly as members make voluntary contributions and can easily access assets like term deposits, cash and Australian shares.
How much money is being invested into SMSFs each year?
The article reports investors are putting about $26.5 billion a year into the self‑managed super sector, with member contributions alone around $17.5 billion a year. The sector held almost $440 billion in assets at the most recent June snapshot.
What types of investments do SMSFs commonly hold?
Term deposits, cash and Australian shares are common in SMSFs — together they account for roughly 60% of the sector’s assets, reflecting the preference for asset classes that are easily accessible to small investors.
Are SMSFs cheaper than regular super funds on fees?
SMSF costs have declined: the average ratio of expenses to assets fell from 0.69% in 2008 to 0.54% more recently, which has helped push down average fees across the industry. However, analysts warn that fixed accounting and admin fees mean SMSFs tend to be cheaper only once balances reach about $300,000.
What is the average balance in an SMSF and how does it compare to regulated funds?
The average SMSF balance at June 30 last year was $506,000 — about 17 times larger than the average balance in a regulated (industry or retail) super fund, according to the article.
Who is most likely to set up an SMSF?
While most SMSF members are aged 45 or older, the article highlights growing interest from people aged 25–44, especially those who are self‑employed, run a small business or are senior executives.
What are the main challenges SMSFs face right now?
A key challenge is falling interest rates. The article explains that term deposits looked very attractive when returns elsewhere were poor, but as interest rates fall this strategy becomes less advantageous for SMSFs.
How has the rise of SMSFs affected the wider retirement savings industry?
The rapid expansion of SMSFs — about 480,000 funds holding nearly $440 billion in assets — is putting competitive pressure on the rest of the superannuation industry. The sector’s lower costs have helped drive down average fees across the industry, and its popularity has been fuelled by voluntary member contributions.
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